Year: 2022
Type: article
Abstract: We develop a dynamic model of political competition between two groups that differ in their subjective model of the data generating process for a common outcome. One group has a simpler model than the other group as they ignore some relevant policy variables. We show that policy cycles must arise and that simple world views—which can be interpreted as populist world views—imply extreme policy choices. Periods in which those with a more complex model govern increase the specification error of the simpler world view, leading the latter to overestimate the positive impact of a few extreme policy actions. (JEL D72, D83, K42)
Source: American Economic Review
DOI: 10.1257/aer.20210154
Authors: Gilat Levy, Ronny Razin, Alwyn Young
Institution: London School of Economics and Political Science
Language: English
Field: Social Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4283384513